Broking industry tells NSW Parliament why payroll tax should be reviewed

First announced in November 2024, NSW Parliament’s inquiry into the application of the contractor and employment agent provisions in the Payroll Tax Act 2007 was launched following concerns raised by several industries subject to a new tax impost, including the mortgage broking industry (as well as the transport industry).

The review aims to address the controversial application of payroll tax to commissions paid to mortgage brokers. Recent court rulings have fuelled uncertainty and anxiety within the industry, prompting calls for legislative clarity.

Submissions for the review were open until 7 February, with the Parliament now having published responses, including several from the broking industry.

The submissions collectively urge the NSW government to exclude mortgage brokers from payroll tax obligations, saying that current interpretations unfairly classify independent brokers as employees, creating financial strain and industry uncertainty. They call for legislative reforms, exemptions for genuine independent contractor relationships, and clearer guidelines to prevent unintended tax burdens on small businesses, warning of negative consequences for brokers, borrowers, and competition in the lending market.

Among them is a submission from tax law specialist Dentons (by Sue Williamson, Jack Aquilina, and Nikhil Sachdev), which has been a key player in advising the broking industry on the application of the new tax impost.

In its submission, the law firm told the NSW Parliament that urgent reform is needed, recommending that the government:

• Reform the relevant contractor provisions so that they only capture employment-like contractor relationships and do not capture bona fide independent contractor relationships.
• Modernise the relevant contractor provisions to better reflect contemporary business and economic conditions in the modern economy (saying that many of the intermediary relationships that now exist – particularly in mortgage broking – have been captured by the relevant contractor provisions in circumstances where those arrangements were not even able to be imagined at the time those provisions were enacted).
• Amend sections to recast the threshold test for a relevant contract away from a ‘services’ test to a ‘control and integration’ test.
• Update sections to include a new exemption for services arising in respect of genuine intermediary arrangements where the services relate to the performance of obligations imposed under law and/or where the benefits accruing to a principal are merely ancillary or incidental.

Aggregator responses

Aggregation group Loan Market Group (LMG) has been at the forefront of the payroll tax challenge, having been at the centre of the precedent-setting case arising out of its legal proceedings with the chief commissioner of state revenue of Revenue NSW (RNSW).

In its submission, LMG said that independent mortgage brokers “are being unfairly impacted” because even though the court affirmed that brokers run independent businesses, it argued that the tax provisions “fail to adequately exclude them from payroll tax obligations”.

“The current provisions cast too wide a net: payroll tax was never historically enforced on broker commissions, yet recent interpretations have created uncertainty, which particularly impacts smaller brokers,” LMG said, adding that the compliance burden is “unreasonable”.

“Mortgage aggregators like LMG face significant administrative challenges in proving exemptions, often relying on information not in their control.

“The law is inconsistent with its original intent: the provisions were introduced to prevent tax avoidance, not to penalise legitimate independent contractors.”

To address these concerns, LMG recommends that:

• A new exclusion should be introduced that exempts bona fide independent contractor arrangements.
• The current exemptions should be amended so that they carve out types of genuine independent contracting arrangements that are not intended to be caught; of which mortgage aggregation/broking arrangements should be among in light of the commercial relationships between brokers, consumers, aggregators, and lenders.
• An amnesty should be introduced to provide aggregators and other businesses that have prepared their payroll tax returns on the basis of reasonable technical positions, absent contemporaneous judicial guidance to the contrary, and who are subsequently found to have a tax liability. This could afford a ‘prospective only’ application of the law (as is the case for general practitioners in certain states) or limit historic application to a lesser number of financial years than five or impose no interest and penalties on historic periods.

Executive chairman Sam White said: “We believe the recommendations will help align the provisions with its policy intent, provide fairness to businesses and industries that would otherwise be placed in significant distress, and also prevent increased costs on aggregation businesses which would otherwise have little choice but to pass those additional on-costs by way of payroll tax, to individual mortgage broking businesses and ultimately to consumers.”

Another aggregator that has been at the front of a legal challenge of the payroll tax burden on brokers, Finsure has also submitted its thoughts to NSW Parliament’s review.

It said: “The Chief Commissioner has taken a misguided position that brokers operating under Finsure’s aggregation model are performing work for Finsure, rather than operating independent businesses servicing their own clients. This interpretation incorrectly equates Finsure’s wholesale aggregation model with an employment-like relationship.

“Applying payroll tax to Finsure’s wholesale aggregation model fundamentally mischaracterises its role as a service provider and threatens the viability of independent mortgage brokers.”

Finsure is recommending that Parliament intervene to:

• Amending the provisions to exclude complying aggregators (and introduce a clear legislative carve-out for business-to-business (B2B) platforms that sell services to independent contractors).
• Exclude from the carve-out arrangements where the business directs, controls, and is integrated with and financially depends on contracted labour. This would align the law with its original intent to capture disguised employment while excluding independent business models.
• Clarify that intermediary oversight required by law should not be mischaracterised as employer-like control.
• Have the chief commissioner issue clear public guidance confirming that qualifying aggregators and other technology-driven platforms are not employers for payroll tax purposes.

“The relevant contractor provisions should not apply where an entity’s role is limited to compliance facilitation and regulatory obligations rather than directing or controlling the economic activities of independent businesses,” Finsure said.

Finsure CEO Simon Bednar said the “inequitable consequences of our currently broken payroll tax system”, could result in brokers ceasing to operate due to the prohibitive additional expense or passing that cost on to their customers – who are NSW residents seeking to finance their homes – if the current stance is held.

“We urge the NSW Government to correct the potential misapplication of payroll tax to businesses like Finsure’s and other intermediary businesses, which will ensure that: independent mortgage brokers can continue to operate freely; that competition remains strong and NSW resident borrowers benefit from the better financial deals they can secure in a more competitive environment; and the mortgage industry is not unfairly burdened by tax consequences not intended by the Payroll Tax Act,” Bednar said.

Connective has also provided a submission echoing these thoughts, saying that reforms should focus on distinguishing independent business relationships from employment-like circumstances.

The Connective submission called on NSW Parliament to:

• Introduce “clear criteria to assess control and integration” to determine whether a contractor is truly independent (adding that service providers who merely facilitate transactions or enforce compliance with the law should not be caught under the provisions).
• Exempt intermediary service providers from being deemed ‘employers’ under the relevant contractor provisions in the absence of the control and integration mentioned above.
• Clarify that compliance obligations do not constitute “employer-like control”.

Mortgage Choice has repeated the call for clarification on the provisions, saying that bona fide independent contractors, specifically aggregator broker arrangements, are not subject to payroll tax on their commissions, and has also called for an amnesty on audit and enforcement actions and ensuring no retrospective application of the current law is applied.

The REA Group aggregator also suggested that, following review and clarification of the law, Revenue NSW should be required to update Commissioner’s Practice Note (CPN) 016, with input from the broking industry.

Stop penalising small businesses, say broker associations

All three broker associations – the Commercial & Asset Finance Brokers Association of Australia (CAFBA), the Finance Brokers Association of Australia (FBAA), and the Mortgage and Finance Association of Australia (MFAA) – have also submitted their thoughts on the matter.

A common theme uniting the submissions is that the ambiguity caused by the new tax impost is leading to misinterpretations and unfair tax burdens on small businesses (particularly brokers who are sole traders, estimated to be around 41 per cent of NSW’s mortgage brokers) and is unnecessarily costing the industry, putting some businesses at risk.

While exemptions are available for broking businesses with multiple brokers, the precedent set by the recent Loan Market case means that none exists for sole operators who generate an average revenue of $182,000 before wages, fees, and other expenses are paid.

According to the MFAA, under the proposed tax, these self-employed professionals would face an additional $68,000 in payroll tax liabilities – including five years of back taxes – an amount that MFAA CEO Anja Pannek described as “completely unviable”.

Pannek said: “We are deeply concerned that the long-term impact of this stealth tax will have devastating consequences for small broking businesses across NSW, and for borrowers who will see the cost of their mortgages increasing in the middle of a housing and cost-of-living crisis.

“If you can class a sole trader as an employee to levy payroll tax on them, then no one is safe.

“As Payroll Tax laws are largely harmonised across Australia, this isn’t just an issue in NSW – this is a national issue. Hairdressers, dentists, tradies and any sole traders across the country could be targeted. These small businesses are the lifeblood of the Australian economy. We’re surprised this Government would target small businesses and everyday homeowners for more tax.

“After years of inconsistent interpretations in the law, it’s time for this legislation to be reviewed and corrected. NSW taxpayers deserve clarity, fairness, and a system that supports small business owners rather than penalising them for their productivity.

“Mortgage brokers operate independent businesses, serve their own clients, and maintain their own premises, supported by service providers such as aggregators. They take on the risks and responsibilities of running a business, just like other small business owners.

“It’s difficult to understand why this broader context isn’t being considered fairly in the application of payroll tax,” the MFAA CEO said, suggesting that broker numbers could decline due to the financial strain of absorbing a new payroll tax (as many businesses may be forced to close or adjust their business model, reducing competition in the lending market).

“Without brokers, consumers will have fewer choices and in turn face higher mortgage costs and more difficulty accessing credit, further exacerbating the housing affordability crisis in NSW. This isn’t just a tax on brokers – it’s a tax on borrowers and families trying to secure a home.

“If the NSW Government fails to act on this issue in line with their current commitments, our data shows the average NSW borrower – who already carries a larger mortgage than those in other states – could end up paying up to $100,000 more over the life of their loan. We’re calling on the Minns Government to demonstrate leadership by supporting home loan borrowers and small businesses.

“This law is outdated and unfit for purpose. We urge the NSW Government to amend the legislation immediately and call on the Federal Government to lead a national conversation on harmonising payroll tax laws. Australia’s small businesses deserve a fair, modern framework that reflects today’s economic realities.”

Similarly, the FBAA said it had been in consultation with many businesses “that are extremely concerned with potential ramifications of the decision” of the recent Loan Market case, adding: “We put our full support behind the NSW legislative council amending the law to clarify that arrangements between aggregators and mortgage brokers should remain excluded from payroll tax.”

It said that it “stand[s] united” with the positions put forward to the review by Denton’s lawyers, Finsure Finance and Insurance Pty Ltd, and Yellow Brick Road Group.

The FBAA also highlighted that it had written to the NSW Premier in 2024 saying that the matter “sets a dangerous precedent” and asking for the NSW government to “take urgent steps to address the worrying consequences by effecting immediate legislative reform”.

At the time, the FBAA said: “It follows that if a person is appointed as a credit representative of a licensee that they are not an employee. It is difficult to reconcile the decision of the NSW Supreme Court against this simple fact.”

CAFBA has also called for regulatory safeguards to prevent small businesses from being unfairly impacted (similar to previous NSW government actions for general practitioners).

It said in its submission that current guidance from Revenue NSW does not adequately address industry-specific nuances, leading to compliance confusion.

It urged NSW Treasury to review the Payroll Tax Act to align it with modern business structures and suggested Revenue NSW should have a particular focus on anti-avoidance enforcement, not “penalising” legitimate businesses.

CAFBA called for clear, sector-specific exemptions to protect genuine contractor relationships.

It said that extending payroll tax provisions to commercial finance brokers would harm small businesses’ access to credit and disrupt the broader economy.

CAFBA said: “A critical evaluation of the payroll tax system is essential due to the lack of alignment with modern business practices. The discrepancies, particularly in contractor rules, result in unintended consequences that impede investment and operational effectiveness.

"The current system is overly intricate, financially cumbersome, and disproportionately affects sectors and contractual arrangements not originally addressed by the tax regulations. CAFBA is committed to contributing its insights on this critical issue, and respectfully requests the opportunity to further engage directly as a stakeholder to the Committee.”

You can find out more about the NSW Review into the application of payroll tax and relevant contract provisions in the Mortgage & Finance Leader podcast here:

[Related: Broking industry unpacks the payroll tax case]